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Azath Salley was arrested yesterday. One of the allegations made against him is making comments that incite religious hatred.  Azath Salley in recent months has built a reputation of of sorts of being pretty much the only Muslim politician with the courage to go up against the BBS in public.

This affidavit penned by the General Secretary and Leader of the Nava Sama Samaja Party (NSSP) Dr. Vickramabahu Karunarathne, gives a bit of broader context to what Salley was up to in the run up to his arrest. The NSSP, Salley’s NUA and several other parties were part of a “Movement for Unity with Power Sharing” with a mandate that involved tackling racism.

According to the Defense Ministry, Salley has apparently said that Muslims must start an armed struggle like the LTTE, and that they are actually ready and waiting to be armed. Salley is also suspected of having links with the LTTE. No evidence has been brought forth to prove these allegations as yet.

After some heavy drama where he was denied medical care and had to resort to a hunger strike he was admitted to hospital on Friday afternoon. Where his case will proceed is still not clear. Hopefully we will see a fair and transparent legal process. Anything else could be a serious setback to perceptions of government support for ethnic harmony.

But double standards are not nice. For instance, the Bodu Bala Sena has clearly engaged in hate speech and incitement of ethnic hatred. Yet the BBS has only been allowed to grow and prosper. They seem to have quietened down lately, and rumors of anti-BBS foreign pressure have been heard on the grapevine, but there is no telling if the BBS is now a thing of the past; a mere spike in the long line chart of public distractions giving away to the next (Duminda perhaps?); or in fact a sleeping dragon.

The BBS bias though, begins to make clear sense in the murky twilight of Sri Lanka’s realpolitik. Sinhala Buddhist supremacy is nothing new to the country. It has always been there and maybe it always will.

What is worrying to me is not that the government is responsible for unleashing the BBS, because that would imply that it was actually capable of controlling it. What is worrying is that the government, if those that allege that it is behind the BBS are right, is only trying to appease it. Because it plainly poses fatalistic threats to near term stability in Sri Lanka.

From an economic angle, Sri Lanka has a consistent savings to investment gap, so the only way to seriously grow the economy is to attract solid foreign direct investment (or to borrow, but that way lies disaster). But foreigners are notoriously sensitive to political instability; and ethnic strife along with human rights allegations, the Chief Justice fiasco and sudden price hikes just add to the list of cons when it comes to investing in Sri Lanka, especially given enough safer options in the region like the Philippines, Vietnam, Indonesia etc.

So the argument that this is merely another ‘distraction’ pre-supposes an extremely short-termist, even stupid government. Because for it to invent ethnic disharmony out of thin air as a distraction from a flagging economy, a tactic that can only worsen the economy’s prospects would be a very stupid thing indeed.

But I don’t think the Rajapakse’s are short termist, in fact, they could just be one of the most long termist entities in power we’ve had. But they are still playing a balancing act, despite their outward show of power. Mark Juergensmeyer has a few great passages on Sri Lanka in his “The New Religious State” (the whole of it is well worth read). This was written in ’95 but still sounds coldly relevant today.

The present rulers in Sri Lanka face the same dilemma as their predecessors: they need Sinhalese support, but they feel they can not go so far as to alienate the Tamils and other minority groups. They have been attacked viciously by Sinhalese Buddhist nationalists for attempting to achieve what might be impossible: a national entity that is both Buddhist and secular. The use of Buddhist symbols is meant to appeal to the Sinhalese, and the adoption of a secular political ideology is supposed to mollify everyone else.

With elections approaching and Sarath Fonseka back on the campaign trail, powers are converging against the status quo. To take Juergensmeyer’s view, this rise of extremist nationalist forces could be the Rajapakse’s first ‘attack’ at the hands of  “Sinhalese Buddhist nationalists” for trying to achieve a “national entity that is both Buddhist and secular”.

I still think that the Rajapakse model of government, while far from ‘good’, is the best we can have in our current context. We can help improve it, but if it is toppled we would probably descend into disarray. From a policy and historical perspective, and in line with examples of East Asian success stories, a ‘benevolent autocracy’ is probably the only model of government capable of giving Sri Lanka the stability it needs to grow in the longer term. Maybe what John Kotelawala said in 1974 is still largely relevant.

Sri Lanka is not ready for democracy. In a country like Sri Lanka democracy becomes government by bloody mugs and idiots.

But how benevolent is this autocracy? Evidence so far has proven that it can be quite belligerent and reactionary. But is that due to this balancing act, this need to keep all sides happy? And now, how autocratic is it? With movements like the BBS emerging, the stranglehold the Rs have on power is beginning to be questioned as well.

image from JDS Lanka

image from JDS Lanka

The Pax Rajapakse is almost four years old. In that time I’ve gone from being a relative tortoise in my own country to having a degree of freedom that I never imagined possible. I’ve traveled now to virtually every place formerly torn up by the war. And can travel anywhere else I please should I wish to do so.

But the Pax Rajapakse is just that, peace. It has no moral identity. It has no moral pretensions even though it likes to pretend otherwise. Dreadful things are done to preserve the peace. But in all objectivity some might say that the end justifies the means. Peace is its own reason.

But a once universal peace is now fragmenting into varying degrees of peace; different categories of peace now exist. There is a lesser peace and a greater peace. The greater peace is being able to move around your country with freedom, the lesser peace is demarcated by invisible lines drawn through society with labels saying things like ‘Do Not Cross’, ‘Trespassers Will Be Shot’ and  ‘Sycophants Only’.

The country, as it strains under the forces of development, churns society like the roiling Indian Ocean and casts up new oppressed classes and facilitates the surge of new elite. Apparently there is ‘good’ corruption and ‘bad’ corruption. So say some, justifying the regime’s steamroller approach to progress with a substantial personal cut. But where is the line, I say?

While people leave on boats, and put up with heavy abuse for want of jobs and are kicked out of their homes to make way for high rises in the midst of Colombo; a whole new class of wealthy and powerful Sri Lankan is emerging. Closely connected to the country’s powerbrokers, they wield high influence that cuts through social and legal infrastructure like butter. Any justice is we have here is highly skewed in the favor of these elites.

All this has not gone unnoticed. The people are restless and feeling the brunt of ever increasing cost of livingn. Straight talking journalists are still in danger. And the briefly stable peace is now crumbling at the edges with this latest drive of racism. The people are hungry for something to blame. A few decades ago it was the Tamils, and now it is the Muslims. 

But peace is profitable, war is not. And the last thing the government needs is another conflict. And therein lies the problem. Sri Lanka is a corrupt animal. This corruption is like a cancer, but it can still grow within it. Most forecasts still place our economy with prospects of around 6-7% of GDP growth per annum. On a global scale this is huge. This means we double every ten years or so. And if we’re patient enough and do not over reach, we can still become a rich country in our own time.

There are however, serious glitches that can ruin everything. Since Sri Lanka stopped being a low income country, it has stopped receiving aid which basically allowed us to spend more than we earned without worry. And over the years a strong parasitic class developed that benefited and prospered from this surplus, the result; a bloated state sector, crazy inefficiency and high levels of corruption. And now it is this transition from being aid dependent that is really killing us.

Finding itself forced to cover up its various deficits (budget and current account) by taking loans, Sri Lanka is realizing (I hope) that it is mixing a recipe for disaster. We need solid foreign investments to replace these loans and they will not come in until the political, and by extension business, environment is made investor friendly; until budget gaps are sorted out sustainably;  until capital expenditure is focused on projects with long term benefits like education, infrastructure and health.

Currently the government is trying to cover its behind by putting the burden on the public. It should be cutting dead weight and increasing its efficiency by turning state corporations (like the cash bleeding CPC and CEB) profitable, instead it is reducing much needed public expenditure and increasing prices of essential goods and utilities. This burden on the public, ever increasing with the latest round of fuel price hikes, is what is contributing to unrest. There is a continuing laxity in addressing post war issues, and fiascos like the Expropriation Bill and the impeachment of the Chief Justice are poorly handled and reflect very badly internationally.

The Rajapakse regime still has my support. Most East Asian giants grew up under pseudo democracies; Indonesia, Malaysia and Singapore. And the fact that we lack a better alternative has never been more obvious in the light of the UNP’s recent feeble opportunism in attempting to capitalize on racist propaganda. The Rajapakse’s have huge potential to bring something the country has not had for a long time; political stability and long term growth. But they cannot do this by cultivating a parasitic social sub-strata of sycophants and dependents.

Hidden agenda lurks behind this fresh wave of racism, trying to distract from pressing issues at hand. What we should be doing is figuring out the real problems and then campaign for reform, especially with the limitations of our reality in mind. This is undoubtedly hard to do in the current context; the corruption is the cancer and it is within all of us, if you will permit me a bit of drama. If the Rajapakse regime had a big role to play in creating the pax, average Sri Lankans have an even bigger role to play in keeping it.

The Krrish project has been making waves, if only for its absurd proportions. The complex’s tallest tower is going to be the third tallest residential tower, are you ready for this? In_the_world. I hear three quick bangs on a bell; the crowd goes wild as the fighter in the right corner shrugs off his glittering robe. All hail the Krrish project, destroyer of third world woes.

But seriously. I snooped around a bit (and by now this is relatively common knowledge) and found that Krrish doesn’t really have any completed real estate projects anywhere in the world. Closest thing they have is a few projects underway in Guragon, India. As a company laying claim to such a massive venture, Krrish has virtually no media mentions in India, and its only ties to solid listed corporate are a claim to own a stake in Cobra Beer. And in fact Krrish is better known for its brewery business than anything else.

It’s projected to bring about $560mn into the country. But that number exists only on paper. In reality these projects bring a fraction of that amount, usually 10%, and try to source the rest locally. Krrish, which hasn’t started building yet, is rumored to only have brought in $5mn, as a 10% down payment for the value of the land. The completed project will have some 750 apartments plus equal amount of office spaces, each of the apartments are priced at roughly a million dollars.

The plan is to pre-sell them to raise money to build.  But as you can see from the chart below, demand for apartments hasn’t exactly been booming. If demand does not meet supply, the project will have to be abandoned. Far worse though, is the prospect of the project being bankrolled by a country eager for any kind of investment (especially something with a result so grandiose) ending up with the local banking system owning roughly $500mn of bad loans. And this will probably at the very least result in a major banking/debt crisis for the country. Just putting some thoughts out there. What does everyone else think?

krrishh

The Central Bank just released the first six months of trade data for Sri Lanka. Trade is an important component of the Balance of Payments  (BOP). Which computes the sum of a countries transactions with the rest of the world.

Sri Lanka’s BOP is perpetually in the red. In 2011, massive imports in consumer durables and investment goods made the negative balance worse.  High imports last year were facilitated by low interest rates and a propped up exchange rate. But this year the government has tried to discourage imports by floating the rupee, increasing interest rates and actively discouraging banks from lending with a lending cap. There’s also the new taxes on vehicle imports that, together with other restrictions have just begun to impact durable imports in a big way.

The revenue the government gets from vehicle imports is important for its budget deficit (which is total government revenue less its spending). An increase in taxes like we’ve just seen is likely to actually reduce government revenue even further because potential vehicle owners will be completely discouraged to buy.

But so far this year, imports have failed to ease up as much as they were hoped to. And floundering global economies have reduced the demand for our exports. Globally, fuel prices are looking to rise but this will impact fuel imports less than local demand which is likely to increase the more we use thermal power in response to our ongoing electricity problem.

News

The S&P 500 rose 0.7% on positive comments from the Chairman of the Federal Reserve while Stoxx Europe 600 Index (SXXP) dropped 1.8% as Greece’s prime minister asked for a two-year reprieve from cutting government spending. MSCI Asia Pacific Index (MXAP) slid 0.4% on signs of slow growth in the two largest economies in the world and concern over the Euro zone. Brent crude fell 12 cents after reports that IEA is likely to tap strategic oil reserves as soon as September.

Views

What is the risk of escalating tensions in the Middle East contributing to higher oil prices especially given Sri Lanka’s dependence on Iranian oil?

In a context where Sri Lanka is actively discouraging consumer durables imports, India has done just the opposite despite having a teetering exchange rate and BOP issues.

Vietnam is experiencing doubtful growth prospects with an emerging slump in its urban real estate sector.

Africa’s fast-growing middle class has money to spend

An Interesting article from India on reforming its private sector education , and the social conflicts arising therein.

(Frontier Research does this nifty summary as a part of its overall range of news products, usually for private clients. They scour through the myriad goings on in the global economy so you don’t have to, and bring out what’s relevant from a Sri Lankan non-expert’s perspective. Pretty useful if you’re generally into economics, or just want to get a feel of current hot topics. Here I’ve syndicated their Weekly News Summary with permission.) 

News

US Stocks rose for a fourth week on better than forecasted jobs data with the S&P 500 and the Dow Jones rising slightly by 0.4% and 0.2% respectively. European markets also rose on US optimism despite negative sentiments locally, the Stoxx 600 index rallying 2.2% for the week. Asia’s MSCI Asia Pacific Index rose slightly by 0.9%, dropping from higher gains earlier in the week as hopes of European, US and Chinese stimulus measures failed to materialize. Brent crude rose 2.3% and WTI crude rose 1.95% due to escalating geopolitical conditions and positive US jobs data.

Views

Why did India suffer that massive crash in power supply? Corruption, inefficiency and even bad weather conditions all had a role to play, relevant to Sri Lanka in the light if its own recent power problems.

Not a week after the ECB president’s reassuring comments Spanish Bonds crashed again, this time drastically.

China is facing some unexpected BOP trouble due to an increase in Yuan in its system. This in turn is creating a problem in its stimulus plan causing pessimism about its economic prospects to deepen.

A study looks at India’s ‘transfer raj’ or the phenomenon of the mass shuffling and changing of bureaucrats every time a political change occurs; in no way unfamiliar to Sri Lanka.

Capitalism has ‘image problems’ in the US, mainly because of cronyism, state collusion and financial speculation. Relevant to Sri Lanka as it too struggles through much of the same issues in an economic model largely identified as capitalist.

This article argues that ‘peak oil’ as a concept is dead. As more oil reserves become easier to extract as technology improves.

The Economist’s latest Big Mac Index gives interesting perspectives on the relative values of global currencies, in the aftermath of a global ‘currency war’ of sorts.

Economists provide insights into which factors help make countries successful in their bids for Olympic glory.

Frontier Research does this nifty summary as a part of its overall range of news products, usually for private clients. They scour through the myriad goings on in the global economy so you don’t have to, and bring out what’s relevant from a Sri Lankan non-expert’s perspective. Pretty useful if you’re generally into economics, or just want to get a feel of current hot topics. Here I’ve syndicated their Weekly News Summary with permission. The Indian economy is drawing quite a few uncanny parallels with Sri Lanka’s and global markets primarily reacted to goings on in China.   

The Week in Global Markets

Markets in Asia fell as economic slowdown in China, Korea and Australia sparked fears of lower corporate profits. Meanwhile US markets rose on hopes of policy easing in China, as the latter saw its slowest economic expansion in three years. Euro markets also advanced on similar hopes while Italy’s falling borrowing costs also contributed to optimism. Oil rose on speculation of Chinese stimulus and on the back of tightening US sanctions on Iran.

The Week in Economic Views

India’s emerging fiscal and BOP problems are uncannily similar to Sri Lanka as the latter battles an expansion of its Current Account and doubts as to whether it can keep its budget deficit under control.

The US presidential race draws near and ‘outsourcing’ is increasingly becoming a dirty word as candidates seek to distance themselves from it, something regional outsourcing firms should keep an eye on.

An interesting article in this week’s summary discusses the Indian people and their tolerance of government censorship; a topic currently under hot discussion in Sri Lanka.

In Mid 2013, Sri Lanka will have an announcement on how much oil it possesses; a possible game changer for the country. It is worth keeping an eye on new oil rich nations such as Kenya to get an understanding how the impact of oil discovery will flow through to the rest of the economy.

With the emergence of South East Asia as a growth hotspot, global powers are falling over each other to woo the region’s governments and to secure a portion of the pie. South East Asia’s rise poses emerging threats as well as opportunities for Sri Lanka.

In China, while official headline Macro data continues to be reasonable, other news and data has turned much worse; perhaps indicating a need to find alternate data on the Economy for Sri Lanka that could provide similar tracking to assess the latter’s performance as well?

India and Sri Lanka have both suffered large depreciations of their currencies in recent times. Non resident Indians are however inadvertently rallying to their currency’s cause, by investing their dollars in the India to take advantage of the cheaper rupee.

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